We sponsor a number of retiree health and life insurance benefit plans (retiree benefit plans). Principal retiree benefit plans are discussed below; other such plans are not significant individually or in the aggregate. We use a December 31 measurement date for our plans.

Principal retiree benefit plans provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Eligible retirees share in the cost of healthcare benefits. Effective January 1, 2005, we amended our principal retiree benefit plans to provide that, upon retirement of salaried employees who commenced service after that date, such retirees will pay in full for their participation in the GE retiree health benefit plans. These plans cover approximately 240,000 retirees and dependents.

Effective December 31, 2006, we adopted SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. See note 1 for the incremental effects of the initial adoption of SFAS 158 on our Statement of Financial Position at December 31, 2006.

The effect on operations of principal retiree benefit plans follows.

COST OF PRINCIPAL RETIREE BENEFIT PLANS

(In millions)		2006			2005			2004
Expected return on plan assets		$ (127	)		$ (138	)		$ (149	)
Service cost for benefits earned		229			243			210
Interest cost on benefit obligation		455			507			518
Prior service cost		363			326			298
Net actuarial loss recognized		64			70			60
Retiree benefit plans cost		$ 984			$ 1,008			$ 937

Actuarial assumptions. The discount rates at December 31 were used to measure the year-end benefit obligations and the earnings effects for the subsequent year. Actuarial assumptions used to determine benefit obligations and earnings effects for principal retiree benefit plans follow.

Actuarial assumptions

December 31		2006			2005			2004			2003
Discount rate(a)		5.75	%		5.25	%		5.75	%		6.00	%
Compensation increases		5.00			5.00			5.00			5.00
Expected return on assets		8.50			8.50			8.50			8.50
Initial healthcare trend rate(b)		9.20			10.00			10.30			10.50

(a)	Weighted average discount rates of 5.90% and 6.40% were used for determination of costs in 2004 and 2003, respectively.
(b)	For 2006, gradually declining to 5% for 2013 and thereafter.

To determine the expected long-term rate of return on retiree life plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We apply our expected rate of return to a market-related value of assets, which stabilizes variability in assets to which we apply that expected return.

We amortize experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over a period no longer than the average future service of employees.

Funding policy. We fund retiree health benefits on a pay-as-you-go basis. We expect to contribute approximately $700 million in 2007 to fund such benefits. We fund retiree life insurance benefits at our discretion.

Changes in the accumulated postretirement benefit obligation for retiree benefit plans follow.

Accumulated postretirement benefit obligation (APBO)

(In millions)		2006			2005
Balance at January 1		$ 9,084			$ 9,250
Service cost for benefits earned		229			243
Interest cost on benefit obligation		455			507
Participant contributions		43			41
Actuarial gain		(707	)		(55	)
Benefits paid(a)		(810	)		(856	)
Other		(32	)		(46	)
Balance at December 31(b)		$ 8,262			$ 9,084

(a)	Net of Medicare Part D subsidy of $75 million in 2006.
(b)	The APBO for the retiree health plans was $6,001 million and $6,713 million at year-end 2006 and 2005, respectively.

Increasing or decreasing the healthcare cost trend rates by one percentage point would have had an insignificant effect on the December 31, 2006, accumulated postretirement benefit obligation and the annual cost of retiree health plans. Our principal retiree benefit plans are collectively bargained and have provisions that limit our per capita costs.

Changes in the fair value of assets for retiree benefit plans follow.

Fair value of Plan assets

(In millions)		2006			2005
Balance at January 1		$ 1,619			$ 1,652
Actual gain on plan assets		222			107
Employer contributions		636			675
Participant contributions		43			41
Benefits paid(a)		(810	)		(856	)
Balance at December 31		$ 1,710			$ 1,619

(a)	Net of Medicare Part D subsidy of $75 million in 2006.

Plan assets are held in trust, as follows:

Plan Asset Allocation

		2006						2005
December 31		Target allocation			Actual allocation			Actual allocation
U.S. equity securities		35–55	%		44	%		51	%
Non-U.S. equity securities		15–25			22			19
Debt securities		15–30			18			20
Real estate		1–10			4			2
Private equities		1–11			3			1
Other		1–13			9			7
Total					100	%		100	%

Plan fiduciaries set investment policies and strategies for the trust. Long-term strategic investment objectives include preserving the funded status of the plan and balancing risk and return. The plan fiduciaries oversee the investment allocation process, which includes selecting investment managers, setting long-term strategic targets and monitoring asset allocations. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.

Trust assets invested in short-term securities must be invested in securities rated A1/P1 or better, other than 15% of short-term holdings which may be rated A2/P2. GE common stock represented 6.1% of trust assets at year-end 2006 and 2005 and is subject to a statutory limit when it reaches 10% of total trust assets.

Our recorded balances for retiree benefit plans are as follows:

Retiree benefit asset (liability)

December 31 (In millions)		2006			2005
Funded status(a)		$ (6,552	)		$ (7,465	)
Unrecognized prior service cost		(b)			2,409
Unrecognized net actuarial loss		(b)			902
Net liability recognized		$ (6,552	)		$ (4,154	)
Liability recorded in the Statement of Financial Position
Unfunded liabilities
Retiree health plans
Due within one year		$ (681	)		$ (740	)
Due after one year		(5,320	)		(3,395	)
Retiree life plans		(551	)		(19	)
Net liability recognized		$ (6,552	)		$ (4,154	)
Amounts recorded in shareowners’ equity
Prior service cost		$ 2,046			$ —
Net actuarial loss		4			—
Total		$ 2,050			$ —

(a)	Fair value of assets less APBO, as shown in the preceding tables.
(b)	Amounts recognized in shareowners’ equity in 2006 upon adoption of SFAS 158. See note 1.

The estimated prior service cost and net actuarial loss for our retiree benefit plans that will be amortized from shareowners’ equity into retiree benefit plans cost in 2007 are $290 million and $10 million, respectively. Comparable amortized amounts in 2006 were $363 million and $64 million, respectively.

Our estimated future benefit payments are as follows:

Estimated Future Benefit Payments

(In millions)		2007			2008			2009			2010			2011			2012–2016
Gross		$ 935			$ 920			$ 880			$ 860			$ 840			$ 3,760
Expected Medicare Part D subsidy		85			95			105			110			115			660
Net		$ 850			$ 825			$ 775			$ 750			$ 725			$ 3,100

Our labor agreements with various U.S. unions expire in June 2007, and we will be engaged in negotiations to attain new agreements. Results of 2007 negotiations cannot be predicted. However, recent past negotiations have resulted in increased per capita costs as well as a corresponding increase in our APBO. There is no assurance that such increases pursuant to 2007 negotiations will be less than recent experience.

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